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Jul 11, 2009

"Cash for Clunkers" wins over U.S. drivers, dealers

PHOENIX (Reuters) - Having driven the equivalent of six smoke-belching laps of the planet, Tony Metzler figured his aging Chevrolet Blazer SUV would not make a good trade for a new car. Until now that is.

With a $1 billion federal "Cash for Clunkers" program that pays consumers $3,500 or $4,500 in credit to swap aging gas-guzzlers for new, more fuel efficient models, he made the plunge.

"It ended up being right place, right time for me," said Metzler, 42, who traded his eight-year-old sport utility vehicle for a new Chevrolet Equinox this week. "It seemed like a good opportunity."

The program signed into law by President Barack Obama in June offers a trade-in credit of up to $4,500 to owners of cars built since 1984, with fuel economy of 18 miles per gallon or less.

It also applies to SUV, vans and pickup trucks. Participating dealers assess the discount, apply it to the new vehicle, and then obtain reimbursement from the government. Details of eligibility are available at www.cars.gov.

Metzler, a Phoenix-valley insurance executive, had racked up 150,000 miles in his old SUV that averaged 17 miles per gallon. He got a $3,500-credit toward his new car, which gets a slender 3 mpg improvement.

The program, which backers hope will arrest the auto industry's slide and sell 250,000 new vehicles this year, runs through November 1 or until funds are exhausted. It has been broadly welcomed by auto dealers across the country.

"It's a wonderful program. It helps out the environment, it helps out the customer, and it gives a jump to the automobile industry when it needs it the most," said Scott Gruwell, sales director of Courtesy Chevrolet, the Phoenix-based General Motors dealership that sold Metzler his Equinox.

Cliff Johnson, president of Texas Motors Ford, agreed.

"Are we excited about it? Absolutely! We think it is a great opportunity for people to get rid of their clunkers," said Johnson, whose dealership in Fort Worth has about 250 vehicles on its parking lot.

Some dealers felt it also fostered environmental consciousness among consumers.

"It is very unique in the way it's positioned. The buyer becomes very environmentally sensitive and responsible," said Bobby Cavender, a partner with the Cavender Auto Group in San Antonio, Texas.

The program, which could be extended by lawmakers, is the latest of a variety of enticements offered to car buyers in the downturn.

A federal plan in March allows buyers to deduct state and local sales taxes in their 2009 tax returns, while automakers themselves offer a plethora of cash-back and cut-rate financing deals. Taken together, they stack up, analysts say.

"If you need a car, or are close to needing a car ... This is shaping up to be a good time to do it," said Phil Reed, senior consumer advice editor at Edmunds.com.

DEALERS IN LIMBO

The program is similar to a car-scrapping subsidy adopted by German authorities earlier in the year.

To safeguard against fraud, U.S. authorities have warned consumers not to give financial details to third parties touting the program on the Internet.

Individuals taking part also need to provide proof of identity as part of the transaction -- to prevent repeated use by the same person -- while the clunkers themselves are crushed or shredded to prevent resale.

The law nominally came into effect July 1, although final details setting out the full government rules will be published around July 24.

While some participating dealers have pushed ahead and clinched their first sales -- trusting that they will be reimbursed by the government later -- others say they are reluctant to close deals until all details are finalized.

"We really don't have the forms, we don't have anything set up from the government until the end of July ... So that's where we're at, kind of in limbo," said Mike Szatmary, a manager at Bredemann Toyota in Park Ridge, Illinois.

In Fort Worth, Johnson said uncertainty over final rules meant that they had not started giving credits for clunkers -- which must be continuously insured and registered to the same owner for a full year to qualify.

"We've had a few people calling about it, but all we do is take their name and phone number ... We just need all the details so that we can rock and roll," he said.

Despite the early confusion, dealers say the program would likely help their profitability once it is fully up and running.

"We're anticipating that ... we'll get up to 15 to 20 percent increase in total volume, which will help out the overall dealership going forward," said Gruwell, who has signs splashed across his sun-scorched lot promoting the program.

At Bob Smith Toyota in suburban Los Angeles, veteran sales manager Mark Near is more cautious. He points out that not all clunker owners interested in the program will necessarily qualify for a loan, although simply getting potential customers through the door is a plus in itself in difficult times.

"It's more than just actual car sales. You get them in, even if they don't qualify, things will be happening," Near said. "It will create something that's not happening now."

Courtesy of reutersonline 7/9/09

Tim Gaynor

(Additional reporting by Ed Stoddard in Dallas, Jim Forsyth in San Antonio, Andrew Stern in Chicago and Steve Gorman in Los Angeles; editing by Philip Barbara)